Evaluating the Board
Phil Kenkel
Professor and Bill Fitzwater Endowed
Cooperative Chair
Boards of directors are under
increased scrutiny. After the scandals of
Enron and other big businesses,
accountability has become a big issue.
Members and stockholders want to feel
confidence in the businesses they have
invested in, government agencies want
those cheating the system to be caught,
and the public in general is appalled at
the general lack of ethics within
businesses. Cooperatives are not
immune to this kind of scrutiny and this
makes it more important than ever that
boards participate in annual reviews of
management, financials, and the board’s
activities. Laws are going to become
stricter and as members become more
distrustful of their cooperative lawsuits
are occurring more frequently. With the
spotlight shining on the actions of the
board, one mistake could have great
consequences.
Why Evaluate the Board?
It is the job of the board to evaluate
management, the cooperative’s financial
performance, the membership and
structure, as well as the coops mission
and goals but who will evaluate the
board? Evaluation is a way of checking
your progress against your mission and
goals. So the board should check its own
progress on a regular basis. After all, the
other parts of the cooperative are held
accountable to the board and shouldn’t
the board be held to the same set of
standards as everyone else? A thorough
evaluation will not only allow the board
a chance to see where it is in
accomplishing its goals but will also
give the members a more meaningful
measure of accountability.
A board evaluation gives the
board a chance to reflect on and assess it
strengths and weaknesses and allows
directors to reflect on what the board has
accomplished. It can provide an
invaluable yardstick by which activities
and priorities for the next year can be
measured. It can serve as and
educational and consensus building
function that will help the board work to
set goals together and set a standard for
performance that future boards will be
held to. Most importantly it gives a good
board a feeling of accomplishment to
review all of the accomplishments of the
board in the last year. This is essential in
a thankless job that sometimes seems
like hard work for nothing.
No Excuses
Boards find many excuses not to do
appraisals. It is difficult to be objective
when appraising yourself and your
counterparts. The paperwork involved is
considerable. The process tends to be
awkward, unproductive and unpleasant
if improperly executed; however to
avoid this responsibility is to seriously
jeopardize the future of the cooperative.
Guidelines for an Effective Board
Appraisal
In order to make the board appraisal
effective the board should follow a few
simple guidelines. The board evaluation
is not a personal performance review. A
board
assessment
evaluates
the
performance of the board as a whole and
by singling out individuals it is not
serving its function. Be honest. An
honest and frank assessment of board
performance and practices should serve
as a starting point for discussions about
how to improve the board’s systems and
overall effectiveness. Don’t waste time.
Ask bottom line questions that assess the
board’s role in member needs and what
you have actually accomplished. Set an
evaluation procedure and criteria ahead
of time so that the assessment can go
smoothly. By following these guidelines
the board can assess their performance
without the awkwardness of an
unorganized review.
Who Does the Evaluation?
The board has several options in the
party that will evaluate them.
Full Board Self Evaluation
The first option is a self-evaluation. If
this option is chosen then the entire
board should participate. The benefit of
this method is that, as a board, no
outside party knows what goes on inside
the boardroom better than you do.
Another option available is to have a
committee of the board do the
evaluation.
Board Committee Self Evaluation
A board committee evaluation has the
same benefits of a full board evaluation;
however, because the entire board is not
involved there is the possibility of bias.
Non-Board Committee Evaluation
An option to this is to have a non-board
committee do the assessment. This
option will provide an unbiased opinion,
but the members of the committee will
be looking on from the outside and will
not understand the workings of the board
as well.
Outside Consultant Evaluation
The final option is to hire an outside
consultant. This can be most effective
for first time evaluations as the
consultant can provide objective criteria,
outside perspective, and provide a
precedent for future evaluations. Other
times that an outside consultant should
be used is if it has been an emotionally
charged year, the board has had
difficulty finding consensus, or if the
internal process has not worked well in
the past.
Evaluation Procedure
In order for board evaluation to be
effective the board must select a
procedure and stick by it. This procedure
should include a definition of the duties
of the directors and should compare the
performance of the directors to these
duties. The board’s directors should then
correct their actions to better complete
their duties. The criteria used in
evaluating whether the duties have been
fulfilled should be simple but clear. Each
question should ask about one item or
aspect of performance. The rating scale
should be simple as well. A numerical
scale is commonly used—such as 5
being outstanding and 1 needing
improvement—and it is advisable to
allow directors the option to say they do
not know the answer to a question.
Finally there should be a written answer
process for comments that directors may
not feel comfortable saying out loud in
the group.
The evaluation should cover all of the
areas that the board is responsible for.
This includes membership accountability
and governance, board operations, legal
responsibility, financials, planning and
board/member relations. Criteria should
be set for each of these categories by the
board ahead of time.
Membership
Accountability
and
Governance
The board is the representative of
the members and steward of their
interests. It is important that the board
does what is in the best interests of the
cooperative as a whole and is able to
communicate this to the membership.
Criteria for membership accountability
could include the effectiveness of
membership meetings, the process for
director selection, and the effectiveness
of the annual report presentation.
Board Operations
This area should have the longest
evaluation and should be the most
thorough. Criteria for board operations
can include: policies regarding board
terms, elections, officers, meeting
attendance,
committee
structure;
timeliness of decisions; executive
sessions; job descriptions for the board
members and the CEO; procedures for
the appraisal and compensation of the
CEO; and the effectiveness of the
committee structure.
Legal Responsibilities
The affairs of the cooperative should
always fall in line with the guidelines
provided by the articles of incorporation,
by laws, and any regulations governing
the organization. The criterion for this
category includes: board knowledge of
these governing documents, a review of
the articles and by laws, and the degree
to which the board is informed.
Financial Overview
This assures that proper financial
practices that are in line with the
Generally
Accepted
Accounting
Principles. The criterion may include the
following; financial policies reviewed
and updated, budgets approved, financial
goals, insurance, member equity
redemption procedures, and preparation
for the annual audit.
Planning
Planning is the process that pulls all of
the goals and objectives of the
cooperative together and makes them
achievable. Without proper planning the
cooperative will no be able to move
forward. The criteria that the board must
review are: mission and vision
statements, annual business plan, five
year plan, long term plan, and board
knowledge of the business environment
in which the cooperative operates.
Board-Management Relations
Although they often run together, the
responsibilities of the board and the
management team are very different.
Strong communication and procedures
are necessary to assure that the board
and the manager are both doing their
own jobs. Criteria for this category are:
CEO job description, evaluation
procedures, compensation, and reports as
well as the role that the CEO plays both
in and outside the board room.
Compiling the Data
A compilation of all directors'
responses to questions (or outside
consultants' responses) should be
prepared and copies distributed to all
board members. But this is not the end.
One or two board members could review
the data and prepare an initial analysis
for the board. But more importantly, the
entire board should review the data and
then discuss priorities for future board
work -- setting goals for the board for
next year or directing a committee to
follow-up on low-scoring areas.
A board evaluation should
provide guidelines for effective board of
director performance. It should answer
the question, "Are we as a board
contributing to the co-ops ability to meet
its purpose?"
An honest and frank assessment
of board performance and practices
should serve as a starting point for
discussions about how to improve the
board's
systems
and
overall
effectiveness.
Building Strong Boards
The board has as its role a "change
agent." This differs from the traditional
judicial performance of making "go" or
"no-go" decisions on management
proposals. A board can develop ideas on
its own, but this requires an atmosphere
conducive to change and board members
able and willing to go beyond traditional
evaluative
or
judicial
postures.
Imagination, innovation, and willingness
to try new concepts and ideas are
attributes vitally needed in many
boardrooms.
Good boards of directors
continually strive for improvement and
encourage the employees and manager
of the cooperative to do the same. If a
board contains members that are good
leaders, mentally aggressive, value time,
and want to make the best possible
decisions, an annual evaluation will be a
tool for improvement.